Our View: Be smart about protecting Texas' financial resources for the future

A-J Editorial Board

Wednesday

Apr 24, 2013 at 12:01 AM

Texas is in a much healthier economic situation in the current 83rd Legislative Session than it was two years ago. But having more money on hand doesn't mean all of it should spent. Some can be used for tax relief, and some can be saved.

The Texas Public Policy Foundation wants to return money to taxpayers by cutting taxes. Gov. Rick Perry wants to give $1.6 billion for tax relief to Texas businesses. Both ideas have appeal, as does restoring some of the funding cuts that were made in the last legislative session.

So what should be done with the money? At least part of the funding cuts from the last session are being restored, and of the remainder, some should be used for tax relief and some should be saved for a rainy day.

Gov. Perry's plan for business tax relief is no doubt connected with his hopes of luring out-of-state businesses to relocate to Texas. He ran advertisements in California and made a recruitment trip there earlier this year. Last week, he started a similar attempt in Illinois.

His proposal for relieving the franchise tax for Texas businesses is in four parts, according to the Texas Tribune:

» Reduce overall franchise tax rates by 5 percent.

» Make a permanent $1 million deduction for businesses with up to $20 million in gross receipts.

» Lower the franchise rate for businesses that file their taxes using the state's simplified "EZ form."

» Allow companies outside the state that relocate to Texas to deduct their moving expenses.

Texas Association of Business, the National Federation of Independent Business and other groups have supported his plan.

In theory, when taxes are reduced to businesses, savings will be passed along to the customers. However, the Texas Public Policy Foundation prefers returning the money directly to the taxpayers, such as by a reduction in sales tax.

One legislative session with positive financial news does not make a trend. Making cuts should be done cautiously - and so should spending money.

Texas had a similar circumstance in 2005 as it does this year, according to the TPPF. After a shortfall in 2003, there was a surplus in 2005, and the Legislature went on a spending spree.

We recommend saving part of the surplus - much in the way a prudent family could put money away to deal with unexpected trouble or expenses that could arise down the road. We don't have to spend it all.

The Rainy Day fund balance is expected to reach $11.8 billion by August 2015, and part of the current surplus can be added to it.

We think helping business is a good idea, but we recommend a cautious approach. Half of the governor's planned $1.6 billion in business tax relief sounds like a good start.

Texas would be wise to put some of the surplus in the Rainy Day fund. No one knows what the future will hold, and saving some of the money provides security for the future.

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